Amtech Systems Inc (ASYS) 2008 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the fiscal 2008 fourth quarter and year end results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS). This conference is being recorded today, Wednesday, December 10th, 2008.

I would now like to turn the conference over to Jim Byers of MKR Group. Please go ahead.

Thank you, operator. Hello, everyone, and thank you for joining us this afternoon for Amtech Systems's fourth quarter conference call. On the call today are J.S. Whang, Amtech's President and Chief Executive Officer, and Brad Anderson, Amtech's Chief Financial Officer.

After the close of market trading today, Amtech released it's fiscal 2008 fourth quarter and year end results. The release will be posted on their website at www.AmtechSystems.com. In addition a phone replay of today's call will be available beginning approximately two hours after the call's conclusion, and remaining in effect for one week. The call replay information is included in the earnings press release.

Before we begin, let me note that during today's call, management will make forward-looking statements, all such forward-looking statements are based on information available to Amtech as of this date, and they assume no obligation to update any such forward-looking statements. These statements are not guarantees of future performance, and actual results could differ materially from current expectations.

Among the important factors which could cause actual results to differ materially than those in the forward-looking statements, are changes in the technology used by Amtech's customers, change and volatility in the demand for diffusion equipment, the effect of changing worldwide political and economic conditions on government-funded solar initiatives, capital expenditures, production levels including those in Europe and Asia, the effect of overall market conditions and market acceptance risks. Other risks include those associated with dependence on the suppliers, the impact of competitive products and pricing, technological and product development risks, and other risk factors detailed in the Company's Securities & Exchange Commission commission filings, including it's Form 10-K and Forms 10-Q.

With that said, I will now turn the call over to J.S. Whang.

Thank you Jim. Good afternoon everyone, thank you for joining us today. Brad will review our financial results in a moment, but first, I will provide some highlights for the fiscal year, and an update on recent business developments. We made a significant accomplishment in fiscal 2008, reflecting successful execution of our solar group strategy.

One, for a second consecutive year, we grew solar revenue by more than 300%. Two, we achieved record bookings for the year of approximately $107 million, a 93% increase over the prior year. Three, we introduced several new solar products in calendar 2008 that significantly expand our total available market. Four, we significantly improved our operational efficiencies, to better leverage our higher volumes. Five, we finished the year with a strong Q4 results, reflecting the solid progress we are making toward achieving our targeted operating model.

To underscore our successful transition from a semi dominant to a solar dominant company, solar revenue comprised 60% of our record revenue for fiscal 2008. Looking ahead, we all face a challenging economic environment. And even within the solar industry, we have seen an adjustment in capacity expansion, and a slowing in the rate of production as well. There also continues to be uncertainty within the semi industry, and we remain very cautious about future order activities.

However, we continue to remain very positive long term outlook for growth in the solar industry, and an upturn in the semi market to a normal level soon. We believe these challenges will also likely create opportunities for us to employ our acquisition strategy. We have made significant progress in streamlining our operations, and maintain a strong cash position to weather the current economy.

Going forward, we are carefully, intelligently managing our operations with the goal of achieving positive cash flow from operations in fiscal 2009. At the same time, we continue to execute on our solar growth plan to offer multi solar products, and expand our market opportunities, and further penetrate the solar market. During the year, we introduced our new solar PECVD product, which performs the coating of anti-reflective film on solar wafers. This product provides entry into a significant segment of the solar market, that we expect will greatly increase the total available market we currently sold.

In addition, we announced in last November, an agreement to market a new solar dry etching product, which removes phosphorous silica glass during the solar cell manufacturing process. We expect to efficiently launch this product in the first half of calendar 2009. We are very focused on actively promoting our expanded product offerings in the marketplace, and leveraging our substantial solar customer base and strong presence in global markets. We believe we are well-positioned for continued success in capitalizing on the growth opportunities we have as a multi-product supplier to the solar industry.

I will now turn the call to Brad to discuss our financials. Brad?

Thank you J.S. I would like to review only of our strong fourth quarter and successful fiscal 2008 year. For the fourth quarter, net revenue was a record $26.8 million, more than double net revenue of $13.1 million in the fourth quarter last year, and up 11% sequentially over the third quarter, which in and of itself was a record quarter, all driven by higher sales to the solar industry.

Solar revenue for the fourth quarter was $17 million, compared to $4.4 million in solar revenue in Q4 last year. For the full fiscal year 2008, solar revenue was $50.1 million, approximately a 300% increase over fiscal 2000 solar revenue of $12.5 million. Our total order backlog at September 30, 2008 was approximately $47 million, up 104% from a backlog of $22.9 million a year ago. This total includes approximately $37 million in orders from our solar industry customers at fiscal year end, compared to $17 million of solar backlog in the prior year period.

Fourth quarter gross margin was 31%, the same as the fourth quarter a year ago, and was 29% in the preceding quarter. The sequential improvement in gross margin is primarily due to a lower amount of profit deferred net of expenses in the quarter. So during the quarter we deferred 1.3 million of profit, compared to $300,000 in the prior year quarter, and 1.8 million in the preceding quarter.

Selling, General & Administrative expenses were $5.6 million in the fourth quarter, compared to 3.2 million in the fourth quarter a year ago. The increase in SG&A primarily reflects increased selling expense related to commissions on higher revenues, and other selling costs due to increased shipping volumes and increased marketing activities, along with SG&A from our Automation division, R2D, for which there were no comparable costs in Q4 a year ago.

In the fourth quarter we achieved an operating margin of 8.1%, compared to 5.9% a year ago, driven primarily by higher shipment volumes. During the fourth quarter, as we observed the deteriorating credit and financial markets, we shifted our cash into money markets funds invested in short term treasuries, which while very secure, all have carried a very low yield. As a result, interest income was essentially offset by foreign currency and interest expense in the fourth quarter.

Net income for the fourth quarter of fiscal 2008 was 1.4 million, or $0.16 per diluted share, compared to net income of $1.1 million, or $0.17 per diluted share, for the fourth quarter of fiscal 2007, which reflects a higher amount of shares outstanding. For the fiscal 2008 full year we generated record net revenue of $80.3 million, a 75% increase over net revenue of $46 million in the prior year. While revenues increased 75%, our operating profit increased 118%, validating our ability to leverage our business model.

We continue to build on our broad and diverse base of customers, both within the solar industry, and with leading semiconductor and wafer manufacturing companies. In fiscal 2008, one customer accounted for more than 10% of our total revenue, and that customer was approximately 20% of our revenue. Total revenue by geographic distribution for fiscal 2008 was as follows, Asia was 68%, North America was 16%, and Europe was also 16%, reflecting our continued success in pursuing and penetrating the important Asian market for solar cell manufacturing.

Gross profit for the year was $23 million, an increase of 10.2 million, or 79% over fiscal 2007, driven by higher shipments during the quarter. Gross margin was 29% in fiscal 2008, compared to 28% in fiscal 2007, reflecting higher capacity utilization. For the year, SG&A expense increased $7.2 million, or 79% from fiscal 2007.

The year-over-year increase was due primarily to increased selling costs primarily commissions, as well as costs incurred at R2D, which was acquired in the first quarter of fiscal 2008, increased costs related to stock-based compensation, costs related to compliance with SOX provisions, and increased depreciation and operating costs for the Company's new building in the Netherlands.

Income taxes for the fiscal full year were recorded at an effective rate of approximately 37%. Net income for the 2008 fiscal year was $2.9 million, or $0.32 per diluted share, compared to net income of $2.4 million, or $0.44 per diluted share a year ago, again reflecting higher average shares outstanding. We continue to maintain a strong balance sheet, as of September 30, 2008, we had a cash balance of $37.5 million, a slight increase over Q3, and working capital of $57.2 million.

Now turning to the outlook for fiscal 2009, while the current global economic and credit crisis has negatively impacted growth in the solar market in the near term, and prolonged the downturn in the semiconductor market, Amtech continues to have a long-term positive outlook on both industries.

With a strong balance sheet and cash position, Amtech expects to deliver from this down cycle even stronger, with our multi-product solar offerings. However, fiscal 2008 visibility is currently unclear, as the recent tightening of the credit markets and the deterioration of the global economic environment, has caused solar cell manufacturers our principle solar customer base, to slow or push out their capacity expansion plans. Despite the anticipated downturn in revenues, we do expect to generate positive cash flow from operations in fiscal 2009.

For the first quarter of fiscal 2009, Amtech anticipates revenue to be in the range of 15 to $17 million, representing growth of approximately 28 to 45% over the first quarter of fiscal 2008. Sequentially, the first quarter of fiscal 2009 revenue outlook reflects a decrease of 37 to 44% compared to the fourth quarter of fiscal 2008, reflecting lower shipment volumes and push-out of some orders and customer acceptances into future quarters.

Again operating results for each quarter including the first quarter, could be impacted by the timing of system shipments. The net impact of revenue deferral on those shipments and recognition of revenue based on customer acceptances, all of which can have a significant effect on operating results.

This concludes the prepared remarks section of our conference call. Operator, please open the call to questions.

Thank you, sir. (OPERATOR INSTRUCTIONS). Our first question is from the line of Colin Rusch with American Technology Research. Please go ahead.

Congratulations, guys on the fantastic quarter. It looks like you had $9.8 million in semi sales for the quarter, can you give us additional granularity on what drove the growth, and how we should think about semi revenue this quarter?

Thank, Colin. Good to hear from you. I think part of that is driven within P.R. Hoffman. This year, while overall semiconductor has been down, we were able to offset some of that with some polishing lapping equipment orders that we were able to ship out in the fourth quarter to other industries, some of them being defense industries for polishing sapphire for night vision goggles, and to other industries that are using different kind of substrates. Also, R2D semiconductor sales were higher in the fourth quarter than we had in the previous quarters.

And how should we think about it next quarter, is that kind of a one-time thing with the defense business? Or is that something that you see continuing?

Our order intake in the fourth quarter on the semi side was low. So that is, that will not fuel that kind of revenue in Q1, or in the future quarters, at least from what we can see right now.

Okay. Great. Can you talk through your strategy for managing through the downturn, I know you have gone through several cycles in the semi business, and how do you expect to leverage that experience looking at the solar business?

J.S., do you want to --?

Yes, I will. The downturn in semi is very severe, comparable to 2002-'03 down cycles. Sequentially we have 28% down in this market, capital spending in 20-some% is projected for 2009. So it is not a pretty picture, and did we good have a plan in weathering our 2003 severe downturn, over 50% capital spending reduction, so this is not something new to us, and for us we do everything we can to reduce our operating costs, and in-line we will reduce the revenue stream. As to the solar, has it continued to be very unsettled, like our visibilities, the degree of an aggressive plan is different, but all of the customers are in a cash preserving mode, and some continue spending money, but mostly a cash preservation mode.

Perfect. How should we think about gross margins, it looks like you had [pro] utilization for a couple of quarters at least, and what is the magnitude of the impact on the gross margin line do you expect?

Sure. As we look forward into 2009, some color there would with that we did buildup quite a bit of deferred profit, because of the growth that we had in sales. So I would expect during the year, not necessarily in first quarter, but during the year we should be able to see some benefit from recognizing that deferred profit as we get through a lot of the acceptances of the product by our customers. That should help offset some of the negative impact on gross margins from a lower volume. So we should still end up with historically decent margins, gross margins going forward, even at these lower volumes.

Great. And then, just a final question, with the acquisition strategy basically you have two more steps that you would like to add too your portfolio, can you give us an update on your progress identifying and acquiring those capabilities?

As you are aware, last month November, we added one more product which we believe that we will be able to aggressively promote in the first half of 2009 calendar year, and we continue also working on additional product lines. That is planned for a completion date of 2010, and our business model is by the end of 2010, we will have front-end five product processing steps, all lined up to be promoted as one continuous line one through five steps, and we have continued aggressively executing that.

Great. And are you active in conversations with folks on the other two side, how receptive have they been, and then I am sure the value for their businesses, has come down dramatically in the last couple of months. And can you give us anymore detail on those conversations?

So we are actively, continually engaged with the parties that participant in this new product effort. And we are busy, and we are happy with the progress that we are making.

Okay. Great. Thanks, you guys.

Thanks.

Thank you. Our next question is from the line of Manoj Nadkarni of ChipInvestor Group. Pardon me. Please go ahead.

Hi. Good afternoon, and congratulations on the good fiscal year.

Thank you.

Can you tell us about the latest developments with regards to the PECVD tool for solar applications?

With PECVD we have a multiple flow of customers showed interest, continue showing interest. We are having our actually final negotiations also happening, however the general background of the slow industry, uncertain of the condition of the solar industry, it doesn't really help our really producing purchase orders. However, the interest level is a continued increasing number of our customers showing interest has been steadily increasing.

And do have you have already Beta sites picked up and have you been running qualifications, more color on that?

Yes, we do have a Beta site, and actually are producing cells with one customer.

Okay. So if the business conditions, solar industry conditions were to be normal, is the machine ready to be in production mode, or how far are you from having it ready for production?

Once the industry comes out of this down cycle, and with it ready to be put into production line, it is a production working machine already.

All right. What time or the total available market for this?

My rough estimation is about a $200 million market size.

Okay. So how does that compare with the diffusion furnaces market in which you are dominant?

I think our market size between diffusion and the PECVD is probably around the same. I would just say PECVD will be our higher than our diffusion, however.

Okay. And what briefly, what should we expect for the newest PSG etch machines?

This PSG technology, the dry etching technology hasn't been used by solar cell production lines to date. And we have one in a Beta site and doing a good job, showing a good cell production efficiencies, and so we are going to continue to do more process and characterization over the next few/several months before we officially launch these. The comparison to existing the PSG removal, which it depends on wet chemicals. A dry mix is simpler and cleaner, and doesn't have to worry about disposing of wet chemicals.

Okay. All right. And did you have any new customers during the September quarter, or since the quarter closed?

We are encouraged by having new customers continue carrying out their expansion plan, and the actual, the purchase order hasn't been consummated yet, but I believe we do have our letter of intent with the new customers. So we are quite encouraged by some of those new customers.

In addition, as we had are announced previously during the first quarter, this December quarter, we had signed up our first turnkey purchase order to a turnkey supplier, and during the fourth quarter, in our previous announcements, we did say we had picked up a couple of new customers. So we continue to expand our customer base.

Obviously that is as far as purchase orders being generated slowed down, as we have talked previously about, with the pullback by everybody during these uncertain economic times. But again, a long term we still believe we are in a good position to be able to participate in the continued solar growth that will return.

Okay. And how is the pricing environment for you at tools, and how is the competitive landscape?

The pricing, though we have not seen much deterioration, in some we have a good price, this is different because the environment itself is a unsettling, some customers are more aggressively pursuing the price, and this is somewhat a mixed bag. But overall, it really hasn't deteriorated that much.

Okay. All right. Thank you.

Thank you. (OPERATOR INSTRUCTIONS). One moment please for our next question. And our next question is from the line of David [Dancey] with Janney Montgomery Scott. Please go ahead.

Hi, guys, congratulations on the great quarter and a great year. Just had a quick question on the cash position, and I know that you all have a focus of expanding your product offerings to include more steps for solar. But I was just wondering if the Company had any plans to buy back it's stock, with you know, 10% of the cash position, at good these prices buy back a million shares, and the stock is down over 70% in the last three months, and it just seems like that would be a rather wise investment considering the Company has sold shares at higher levels.

Yes. So, it is no question that our current price, our level is really attractive for the buy back, and we continue to be struggling with that, and delivering that same issues. Between buy back, which is very attractive, and then another one being invest money for the future growth. So both are very attractive. And right now, we probably are more focused on investing money for the future growth. But, having said that, we continue to try to struggle with our buy back issues, being such an attractive situation now.

Okay. Thanks guys.

Thank you. Our next question comes from the line of Bryan Kiss, Kettle Hill Partners. Please go ahead.

Yes, hi. Thanks for taking my question. Gentlemen, can you just kind of walk us through the flexibility and cost structure in light of the current environment? So what kind of costs are variable, and what can we pull out of the P&L to protect the margins?

Sure, Bryan. This is Brad. When we in the ramp-up that we did in Q3 and Q4, much of the production labor that we engaged was through temporary labor. So we are able to ratchet that down as our volumes go down, and we are continuing to do that in the process in this quarter. So from that standpoint, that is one way in which we are, we are leveraging.

Another variable component is commissions, which obviously as our volumes drop, commissions will drop accordingly. So there is not a tremendous amount of fixed costs in that category. And we continue, it is an iterative process, very dynamic, and we continue to look at that on a month to month, quarter to quarter basis, as visibility becomes more clear in the future. So right now those are kind of the main areas that we are looking at, as far as cost reductions.

Right.

We already did do an adjustment at one of our divisions back in the June quarter and restructured them, and will continue to look at all of the divisions, and to the extent there is restructuring needed, beyond just the temporary labor, we are more than prepared to take those actions if needed.

Okay. And then, when we look at the SG&A line, it seems like commissions would come down some. What is there in expenses that can come down, because I look at the historical numbers here, SG&A you could be 2.5, 2.5 to 3 million, now it is all the way up to 5.6 last quarter, can we get that down into the low 3s and 2.5 again, to protect the EBITDA margins?

We will continue to look at our cost structure and adjust accordingly, but also, not be too short-sighted on the part of making sure we are poised to participate in future growth. With that said if you look at the split, we are really about 10% of our SG&A is S, and 10% is G&A kind of an average. So what we will continue to look at all areas, all cost components, and continue to work to drive that down, so that we can reach that expectation that we have put out there, and that we have said, and that is to be cash flow positive for the year.

Okay. Great. Thanks very much.

Thank you. And our next question is a follow up question from the line of Manoj Nadkarni with ChipInvestor Group. Please go ahead.

Hi. Question for Brad. What was the stock compensation expense in the September quarter?

In the quarter it was 119,000, just call it 120,000 for the quarter.

Okay. Do you have a number for the year also?

Yes about 470,000 for the year.

Okay. Great. Thank you.

You are welcome.

Thank you. (OPERATOR INSTRUCTIONS). There are no further questions in the queue at this time. I would like to turn the call back over to Mr. Anderson.

We appreciate everyone being on the call, and thank you for joining us. We do look forward to reporting to you on our progress, and appreciate your continued interest in Amtech. This concludes today's call.

Thank you. Ladies and gentlemen, this does conclude the fiscal 2008 fourth quarter and year end results conference call.

If you would like to listen to a replay of today's conference, please dial 303-590-3000, or you can dial 1-800-405-2236, and enter access code 11123302 followed by the pound sign. ACT would like to thank you for your participation. You may now disconnect.